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Best Quarter Since 2020

Despite all the reasons for investors to be negative, the Nasdaq 100 just closed out its best quarter since 2020. Whether this trend will continue is the question every investor is asking this weekend. For now, let’s recap what you missed on the last day of Q1. 👀

Today’s issue covers another PCE of the inflation story, Q1’s asset class scorecard, and why Chicken Soup’s stock spilled to fresh all-time lows. 📰

Check out today’s heat map:

Every sector closed green. Consumer discretionary (+2.64%) led, and energy (+0.62%) lagged. 💚

Electric vehicle maker Nikola shares fell 14% after pricing a $100 million stock offering at 20% below Thursday’s market value. đŸĒĢ

Groupon shares rose 25% on news that it’s hiring a new Chief Executive Officer (CEO) based in the Czech Republic. 👨‍đŸ’ŧ

Bed Bath & Beyond and Virgin Orbit remain on the brink, falling 28% and 41%, respectively. 😨

In crypto news, the U.S. Office of the Comptroller of the Currency (OCC) has opened a new fintech office for studying crypto developments. The U.S. National Futures Association is imposing anti-fraud standards and supervision demands for firms engaging in bitcoin and ether trading. And Bitcoin had its best quarter since 2021, rising more than 70% year-to-date. â‚ŋ

Other symbols active on the streams included: $TRKA (-9.48%), $DWAC (+7.58%), $IONQ (+21.06%), $PYXS (-33.17%), $AI (+21.50%), $PALI (+32.83%), and $VHC (-7.09%). đŸ”Ĩ

Here are the closing prices: 

S&P 500 4,109 +1.44%
Nasdaq 12,222 +1.74%
Russell 2000 1,802 +1.93%
Dow Jones 33,274 +1.26%

Another PCE Of The Puzzle Featured Image

It was a busy day of economic data, so let’s try to piece it all together. 📝

The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) index, was today’s big economic data point. The core measure, which excludes food and energy, rose 0.3% MoM and was up 4.6% YoY. That was below January’s 0.5% increase and the 0.4% consensus estimate. 🌡ī¸

Headline inflation was also below expectations, rising 0.3% MoM and 5% YoY. Energy prices declined, while food, goods, and services all rose. The PCE report also indicated that personal income rise by 0.3% vs. the 0.2% gain expected. Meanwhile, consumer spending jumped 0.2% vs. the 0.3% estimate. 

Overall, the disinflation trend continues. But the 4.6% YoY rise is still far above the Fed’s 2% target. Some market participants like Sergei Perfiliev also pointed out that while goods inflation is trending lower, services inflation continues to trend higher. And the Fed has explicitly said it’s worried most about the services component of inflation, which just hit 35-year highs. đŸĨĩ

One counterpoint to this concerning metric is from Nick Timiraos, who pointed out that core PCE services ex-housing growth continues to slow. There’s a lag in housing data because of how the PCE index calculates it. As a result, many suggest the current disinflation trend is actually much stronger than today’s data reflects. Once the recent (real-time) slowdown in housing costs enters the calculation, that core services number should come down meaningfully.  🤔

Overseas, the Eurozone headline inflation print fell from 8.5% in February to 6.9% in March, primarily driven by a drop in energy prices. Core inflation, which excludes energy, food, alcohol, and tobacco prices, rose to an all-time record of 5.7% in March. 🌍

Europe remains several months or quarters behind the U.S. in its inflation fight, where rates are already approaching terminal levels and core goods inflation is trending lower.

Shifting to manufacturing activity, the Chicago purchasing manager’s index (PMI) rose from 43.6 to 43.8 in March. The moderate increase was a surprise, but the measure remains in contraction territory for the seventh straight month. 🏭

Michigan Consumer Sentiment fell for the first time in four months in March as recession worries rose. Concern about the banking sector’s health has yet to reach the average consumer, but overall concerns about the economy continued. 👎

And finally, the second-largest economy in the world saw its services sector rebound sharply in March as its reopening continues. China’s non-manufacturing PMI jumped to 58.2, its best level since 2011. With that said, manufacturing activity in China fell in March as weaker global demand and a real estate downturn weighed on business activity. 🌏

That’s it for the economic updates. Today’s data shows that inflation remains too high, services are humming, and manufacturing activity remains mixed. With stocks capping off their best quarter in several years, we’ll have to see if that optimism is sniffing out better economic conditions ahead. 👀

Chicken Soup Spills To Fresh Lows Featured Image

The American self-help, consumer goods, and media company Chicken Soup for the Soul Entertainment reported worse-than-expected Q4 earnings. 📝

Its quarterly loss per share of $2.70 more than doubled the $1.26 per share expected loss. Meanwhile, revenues of $113.58 million marginally topped estimates. 

Executives say the Redbox integration and pandemic-related “woes” weighed on overall operations. The lack of major movie releases between August 2022 and February 2023 reduced consumers’ incentives to use their 34,000 rental kiosks and online transactional business. With that said, with roughly one big release per week this year, its rental business could make strides toward its 30% of pre-pandemic levels goal in 2023. đŸ”ģ

On the costs side, they noted that the company realized $41 million in cost savings and that there’s potential to cut more. They’re also anticipating $500 million in revenue and adjusted EBITDA of $100 to $150 million for 2023. 🔮

In addition to the weak performance of its core business, news of a fresh capital raise weighed on sentiment. The company announced a secondary raise of 4.69 million shares at $2.30. That should bring roughly $10.8 million in gross proceeds and shore up the company’s balance sheet. 💰

However, that means additional dilution for existing shareholders. As a result, we saw $CSSE shares spill to fresh all-time lows. 😓

Q1 2023 Scorecard Featured Image

We’ll do a more comprehensive recap next week, but let’s quickly look at how the major asset classes did in the first quarter. Below is a Finviz chart outlining the performance of various futures contracts for the U.S.’s most closely-followed assets. 👀

At the chart’s edges, we see the best and worst performers were commodities. The asset class had a wide range of returns, but orange juice and natural gas experienced outsized moves. After a decline in February, U.S. Treasury bonds have recovered and were positive across the board. And the U.S. Dollar is marginally negative but essentially stuck in a trading range.

As for equities, the tech-heavy Nasdaq 100 was the top performer, rising about 21%. Developed markets outside the U.S., like the German DAX, Euro Stoxx 50, and Nikkei 225, outperformed the rest of the U.S. indices. With that said, the S&P 500, Russell 200, and Dow Jones Industrial Average were all marginally positive on the year. 💚

Moving onto sectors, the “risk-on” sectors of the market, like technology, communication services, and consumer discretionary, led after being the worst performers last year. The other major standout is energy, which has experienced a lot of volatility after gaining nearly 60% in 2022. 💚

Overall, investors are betting on a recovery from the beaten-down growth names of 2020 and 2021. Many companies in these sectors have shifted their focus to profitability instead of growth at all costs. And a potential Fed “pivot” to looser monetary policy would be another tailwind for these sectors that investors are betting on.

Clearly, 2023 is off to a much different start than we experienced last year. As always, we’ll have to wait and see what the remaining quarters have in store. 🤷


Bullets From The Day:

📝 France’s new bill looks to crack down on influencers promoting “risky” products. The National Assembly, the lower chamber of the French parliament, passed a cross-party bill to introduce new requirements for social media influencers. Today’s vote will move the bill to the Senate, where it’s expected to pass within the next few weeks. The bill looks to define what a paid influencer is, outline new disclosures they’ll have to make, and impose other restrictions designed to protect consumers from unwittingly following people’s recommendations. TechCrunch has more.

⛔ Japan joins in on the “imposing chipmaking restrictions on China” trend. Shortly after the U.S. and Europe imposed chipmaking curbs on China, Japan followed suit. The country will restrict selling 23 types of advanced semiconductor manufacturing equipment overseas. The rules will go into effect in July and require stricter procedures to export to about 160 destinations, including China. Meanwhile, 42 territories, including the U.S., South Korea, and Taiwan, are recognized as having adequate export controls in place. More from CNN Business.

📉 U.S. sanctions and pandemic controls spark Huawei’s massive profit decline. Chinese tech giant Huawei saw its 2022 net profits decline 69% YoY to 35.6 billion yuan, marking its largest annual decline since 2011. As for what caused the steep drop, executives say rising commodity prices, China’s strict pandemic controls, and a one-off gain related to the sale of Honor in the previous year’s quarter explain most of it. However, U.S. sanctions have also hurt the company, which has looked to offset that headwind by diversifying its business into new areas like cloud computing and autos. CNBC has more.

đŸšĢ Italy bans ChatGPT over privacy concerns. While many countries are going after TikTok over data security concerns, the Italian data protection authority has picked a different target…ChatGPT. The regulator said it has privacy concerns about the artificial intelligence (AI) chatbot’s mode, which U.S. start-up OpenAI created with strong backing from Microsoft. As a result, it’s banning the app immediately and will open an investigation into OpenAI. Where this goes is anyone’s guess. However, what’s clear is that as the AI hype continues to expand, as will the skepticism. More from BBC News.

😕 EV tax credit rules are incredibly complicated. The Treasury Department proposed new rules around the sources of battery minerals and components for electric vehicles (EVs), explaining which EVs meet the requirements for two separate tax credits of $3,750. However, it isn’t obvious to consumers because automakers must do the math and tell the Internal Revenue Service (IRS) which vehicles qualify for the credits. EVs that enter service on or after April 18th will be subject to these new tax credit requirements, so automakers only have a few short weeks to get their information correctly sorted for consumers. CNBC has more.